Movin' on Up


In January, the Federal Reserve released a study that was widely trumpeted as demonstrating that the rich got richer and the poor got poorer during the 1980s.

But almost simultaneously the Republican members of Congress's Joint Economic Committee released a report that called into question the Fed's conclusion.

The Federal Reserve study divides the U.S. population into fifths, or quintiles, based upon income. Thus, the Fed reported that the average net worth of the bottom quintile declined between 1983 and 1989, and the average net worth of the top quintile increased during that same period.

The problem is that popular discussion of such studies implicitly assumes that the composition of those quintiles is fixed—that the people who were in the bottom quintile in 1983 were the same ones who were there in 1989.

But the Republican study shows that is not the case. Looking at census figures, the Joint Economic Committee found that between 1985 and 1986, one-third of all persons changed quintiles. In that same period, 45 percent of those in the middle quintile moved to another quintile. About one-fourth of those in the top quintile dropped down one or more quintiles, and about one-fifth of those in the bottom quintile moved up one or more.

Rep. Dick Armey (Tex.), the ranking Republican on the committee, argues that income mobility is a good measure of economic well-being. "After all," he notes in the report's executive summary, "what tells us more about our economy and the opportunities it presents: that the average income of the top quintile increased two percent in a given year, or that fully one quarter of those in the top quintile arrived there in the past year?"